International

Relations

Multidisciplinary

Doctoral School

THESIS SUMMARY

Dániel Vértesy Cycles of Economic and Technological Change

in Latecomer Aerospace Industries Ph.D. Dissertation

Supervisor:

Dr. András Blahó, CSc university professor

Budapest, 2015

Department of World Economy

THESIS SUMMARY

Dániel Vértesy Cycles of Economic and Technological Change

in Latecomer Aerospace Industries Ph.D. Dissertation

Supervisor:

Dr. András Blahó, CSc university professor

Budapest, 2015

© Vértesy Dániel

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Table of Contents

I. Background and motivations 5

II. Methods applied 12

III. Results of the dissertation 18

IV. Summary of conclusions 24

V. Main References 26

VI. List of relevant publications by the author 30

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5

I. Background and motivations

This dissertation aims to describe and explain the forces behind catch-up

and eventual changes in industrial leadership through the case of the aircraft

industry. It addresses the long-term transformation of developing countries

intro advanced industrialized ones and the entry and catch-up of latecomer

companies. Such processes bring about a change in the global distribution

of labour, in the interdependence of economies, expand and deepen

technological capabilities of the world, and reshuffles centers of global

political power. The aircraft industry lies at the center of these processes in

all its aspects: it is a capital- and knowledge-intensive, strategic sector,

characterised by high value added and high incomes (Prencipe, 2013).

The investigation relies on various strands of literature: on the seminal

works addressing latecomer industrialization and the role of the state in this

process, and on neo-Schumpeterian studies of technological change and

innovation.

One of the central questions of development economics is whether a

latecomer industrializing economy or company enjoys advantages over

forerunners. The idea that economic backwardness may be an asset for

latecomer industrialization has been at the center of debates on economic

development. According to the catch-up or convergence hypothesis of

Alexander Gerschenkron (1962) (who was building on the work of Veblen

(1919)1), technologically backward countries (businesses) can apply already

existing technologies at much lower costs than those who developed them.

Catch-up occurs as productivity increases due to more advanced technology

and the income difference narrows between countries. The larger the initial

1 To do justice to the cited work it should be noted that Veblen’s view was in many

ways sharply different from Gerschonkron’s thesis, e.g. considering technology

transfer as a more automatic mechanism possibly driven by market forces.

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productivity gap (or the greater the distance to the technological frontier),

the greater is the potential for growth. This happens because latecomers can

enter directly into large-scale production in the most dynamic industries and

make advantage of their lack of institutional inertia. The tension spanning

between the promises of economic growth that was demonstrated by the

leading countries and the reality of stagnation is an important motivating

factor for institutional change in the follower. However, institutional

obstacles can (Gerschenkron referred to serfdom or the lack of political

unity) preclude the emergence of such a tension. Based on 19th

century

historical evidence, Gerschenkron points to an interventionist role for the

state to boost capital and entrepreneurship in nascent industries. In

industrializing France or Germany state intervention compensated for (or

substituted) the insufficient (or inadequate) physical, human and

technological resources required to catch-up. To successfully substitute the

missing prerequisites, setting up appropriate institutions and organizations

was crucial. One example was the creation of the German development

bank in the late 19th

century, as in the example of Gerschenkron, or the

Ministry of International Trade and Industry (MITI) in Japan, as others have

pointed out.

The rapid development of many East Asian economies in the second half of

the twentieth century (Hong Kong, Singapore, South Korea or Taiwan)

testify the possibility of reaping latecomer advantages by providing

evidence at the firm and sectoral levels in industries such automobile,

electronics, semiconductor (Kim 1980, 1997, 1998, Kim and Nelson 2000,

Fagerberg 2000, Hobday 1995, 2003, Amsden 1989, 2001, Mathews 2002).

Others argued that latecomers’ disadvantages create vicious circles.

Incumbent companies in a sector have already established close connections

with suppliers and consumers, and may have exclusive access to

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technology, can enjoy economies of scale and their market power (Hobday,

1995; Ferrier et al, 1999). For latecomers, accumulating a critical mass of

technological, investment and organizational capabilities is a lengthy and

costly process. Without these capabilities, they cannot pose a challenge to

the established market structures (Ames and Rosenberg, 1963; Abramovitz,

1986; Lall, 1992; Nelson and Pack, 1999). The outcome of this learning

process is uncertain, which deters investors in less developed economies,

which may justify state intervention (Lall 2001, 2004). Nevertheless, the

success of capabilities accumulation depends largely on the efforts of

companies and other institutional actors. To convert disadvantages into

advantages, Mathews (2002, 2006) is optimistically arguing that latecomer

firms are not bound by organizational inertia. This allows them to shift

quickly from being imitators to innovators, by making benefit of the 3 Ls:

linkage, leverage, learning in the age of globalization, which enhances their

dynamic capabilities (Linking up to global value chains, offering lower

costs and gaining access to knowledge, technology, or markets. The gains

exceed their inputs, offering firms greater leverage. As they do this strategy

in a sustained way, they learn.) This is evidently in contrast with

industrialization strategies of many Latin American countries following

inward looking recipes of ‘de-linking’ and ‘import substitution

industrialization’.

In a broader context, it was found that industrialization was a primary

source of accelerated growth for advanced economies and emerging

countries alike. Szirmai (2005) concludes that no developing country

achieved successful economic development without industrialization.

Verspagen and Fagerberg (1999) present evidence showing that

manufacturing was an engine of growth in East Asia and Latin America.

Using empirical data on structural change and comparative levels of total

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factor productivity, Timmer (2000) shows that investments not necessary

lead to catch-up if it is not associated with assimilation of more advanced

technology, in the case of China, Indonesia and India. The experience of

slow catch-up and the East Asian crisis of 1997 cooled down the optimism

of many observers, spurring continuous debate on how to translate the

catch-up hypothesis into actual policy measures.

A central problem for the latecomer literature is to define the role of the

state and private actors in the industrialization process. The same historical

development paths of East Asian countries have been read in very different

ways depending on the spectacles observers were looking through. On the

one hand, according to the neoliberal view summarized in a widely cited

World Bank (1993) report, the success of governments was their ability to

providing a stable macroeconomic environment. This entailed limited

inflation, rarely appreciating real effective exchange rate, only brief

instances of import substitution industrialization, and earnings from export

motivating technological upgrading in trading sectors. Additionally, public

measures were concerned with human capital formation, established

openness to international trade and a strong bureaucracy that relied on

contests when making selective supporting measures. On the other hand,

both sectoral level and macro level studies (Amsden 1989, Wade 1990,

Hobday 2003) found historical evidence of strong state intervention.2

Amsden (2001) showed that “getting the control mechanisms right” was the

key to the successful “Rise of the Rest”. Recently Chang (2003) and Cimoli

et al (2009) further argued along the lines of Gerschenkron and emphasized

that no backward country has ever developed without a relatively high

degree of government intervention to facilitate technological accumulation

2 Also, studies on the Gerschenkron hypothesis in a regional context show that

national level convergence might even increase regional inequalities. See more on

the ‘Williamson effect’ in Blahó (2005).

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and change the organization of production. Reinert (2009) showed how

protecting infant industries in areas at the forefront of technological

progress helped latecomers emulate the richer leaders of their time and

reduce the asymmetries in knowledge and technological capabilities, and

made technology transfer profitable. Only after symmetry is achieved could

partners specialize and trade according to their comparative advantages and

could (neo-)colonialist structures be prevented. This reconfirms the theses

of Friedrich List who argued that latecomers need protectionist measures to

raise infant industries and new competitors, because free trade hampered

progress by freezing existing trading structure. At the same time, a number

of authors have pointed out the fact that public financing has been a crucial

source for innovations also in the most advanced economies (Ruttan, 2006;

Mazzucato, 2011).

Recent trends of globalization and the expansion of transnational companies

in the world economy has created new kind of opportunities for latecomers.

Late industrializers that connect to lower tiers in the global value chains

possess required capabilities and devise adequate strategies may upgrade to

higher value added activities. What these capabilities and strategies are, and

what kind of state intervention may be necessary to support them, remains

an area of heated debate (Gereffi et al, 2001; Humphrey, 2004; Schmitz,

2004; Szalavetz, 2013).

In sum, the theoretical framework to apply needs to be comprehensive,

encompass firm and government actors, should help understand the co-

evolution of the accumulation of technological capabilities, innovation,

competitiveness, and politics. Innovation and technological capabilities

have been found to play a crucial role in gaining and sustaining

competitiveness (Freeman, 1995; Nelson és Mowery, 1999; Malerba és

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Mani, 2009). At the same time, there is no agreement in the literature ont he

source of long-term competitiveness. We argue that a multi-actor, multi-

level systems bound together by a complex web of interactions of various

nature can be best understood by applying an innovation system perspective

(Nelson, 1993; Freeman, 1995; Edquist, 1997).

Given the lack of empirical data, another key aim of the study is to make

rigorous, evidence-based comparison possible, in combination with a

historical-institutional, qualitative investigation.

There are many practical applications of a study of this industry at the

intersection of world economy and politics. First, due to its size: with 1,300

new aircraft sold anually and a 77% growth over the past two decades, the

industry shows its strenth despite downturns. Its growth perspectives are

also promising, driven by the growing demand for fuel efficient jets. This is

likely to put a price pressure on the current duopoly characterizing the large

civil aircraft market and on producers along the supply chain, and pull

technological development (Deloitte, 2014). At the same time, the market

segment for shorter range regional jets has witnessed significant turbulence

in the past decades, with the Brazilian Embraer taking over the market and

new players entering mainly from Asia: Comac of China and Mitsubishi of

Japan, alongside the Russian Sukhoi. In order to understand and predict

these dynamics, it is essential to study the modes of innovation that

characterise the industry. Furthermore, developing aircraft production

capacities is, due to the dual-use nature of the products, is often seen as a

source of political strength with repercussions on international relations and

the global balance of power.

It is just as important to understand the drivers of development of the

industry from a European perspective, as aerospace generates high-income

and jobs, and attracts foreign direct investments (FDI), also in research and

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development. This is central to the European strategy aiming for structural

change towards high-tech, high-value-added industries that fosters

competitiveness and growth. The innovation competition apparently takes

place at multiple levels, in which companies and governments are important

actors. Thus, understanding the processes of innovation in the industry will

help understand the global political and economic developments in our

multipolar world and supports the design of adequate innovation and

industrial policies, as well as company strategies.

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II. Methods applied

The dissertation investigates the following three main research questions:

How did the international division of labour change in the global

aircraft industry in the past half a century, and what are the main

patterns of internationalization?

Why have some countries succeeded while others failed to catch-

up in aircraft manufacturing – in particular, what strategies did

governments follow in emerging economies that fostered sustained

growth in the sector?

At the level of companies, in the regional jet segment, what have

been the drivers of successive catch-up and leadership changes?

The three questions are connected by the overall aim of investigating the

same phenomenon – change in the global aircraft industry – from multiple

perspectives. They are distinguished by the different points of entry, their

focus on three different aspects and levels of change. In order to establish

the boundaries of the research, we introduce a few definitions for central

concepts used in this dissertation. This involves addressing four main

methodological issues.

The first one is the level of analysis problem. In order to offer a

comprehensive study and mitigate potential biases, this dissertation takes

multiple points of entry: we study country-dynamics as well as company

dynamics. Chapters 2 and 4 have a more macro focus, primarily on

countries, while Chapter 5 looks more closely at the factors influencing

company strategies as well as their impacts on industry dynamics.

With respect to the second problem of delimitation (time, space and

activity), we decided to look at very long term evolution, and start the

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statistical overview with the diffusion of the jet technology in the 1950s and

follow country growth patterns until as recently as possible, and to cover as

many countries as data permits.. This scope serves answering the first two

research questions. As the third research question focuses on regional jets,

the starting point for this investigation will be the early 1980s, with the

emergence of this segment. With regards to selecting the activity in focus,

we take the standard international statistical definition of the aerospace

industry (that is, the manufacturing of aircraft, spacecraft, their parts and

components, including engines and propulsion systems – ISIC Rev.4 class

303) – and not air transport services, and focus on production and

innovation activities. Wherever possible, we opt for a product-based

approach, that is, if companies host multiple activities, we are only

interested in those referring to aircraft. We noted the close link between

military and civilian production, as well as the inclusion of space industry in

many statistics – where possible, we tried to distinguish both. A product-

based approach was also the point of reference for delimiting the aircraft

innovation system.

Third, it was a major challenge to overcome the problem of secrecy,

confidentiality, and lack of information on the sector when aiming to find

long time series, contextual information on systems and information on firm

strategies. Our data sources had to be rather heterogeneous, including

official statistics, company reports, trade journals and newspapers,

secondary analyses, data collected by enthusiasts as well as declassified spy

agency reports. We relied on triangulation methods to validate the

information.

Below, we introduce a few key concepts applied throughout the dissertation.

We argued that the industry level is the most appropriate for studying

Schumpeterian dynamics. This “meso”-level situated between country

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(macro) and firm (micro) levels, is an often neglected field which influences

firm as well as country dynamics; it is of course closely linked to the two,

thus is influenced by politics.

We consider the aircraft industry as a complex innovation (and

production) system, with its specific knowledge base, demand patterns,

actors (companies and public actors, research institutes) and the institutions

that define interactions among those (Malerba, 2002), and which adopts,

develops and introduces new technologies and products in order to sustain

competitiveness. This we take a multi-actor, multi-level perspective, and

focus on long-term evolution of these systems. We build on neo-

Schumpeterian evolutionary economics, which opens that “black box” of

technological development and considers it also an outcome of economic

and social activities; bounded rationality characterizes its economic actors

that make decisions amidst uncertainty, limited information and preference

to routines. As a result, actors may learn. However, the system is not

expected to be bound for equilibrium (Nelson and Winter, 1982; Dosi,

1991).

While there has been a tradition for studies to look at the aircraft industry in

a neo-Schumpeterian perspective (Mowery and Rosenberg, 1982), and in a

sectoral innovation systems perspective (Malerba and Mani, 2009; Niosi

and Zhegu, 2005; Marques, 2004), our choice is driven by the aim to offer a

comprehensive and realistic analysis. Many theories focus only on a certain

element of the system. International political economy, unlike the

neoclassical school, considers political factors influencing economic

choices, but its fundamentally macro-level perspective offers less attention

to differences across industries, in particular regarding technological

development and innovation. Theories of competitiveness similarly tend to

disregard these differences (Szentes, 2006). Similarly, we found product life

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cycle theories (Vernon, 1966) and the recent theory on complex product

systems (COPS, l. Dosi et al, 2003; Hobday et al, 2005) to be useful for

studying products, but less applicable for long-term historical dynamics.

By innovation, we not only refer to the narrow, technology-based definition

of new products and production processes to the market, or opening of new

markets. This dissertation considers the institutional and organizational

changes that create conditions for technological development (Freeman,

1995). That involves interaction with many relevant actors, which makes

innovation only meaningful in a given context.

We define latecomer industrializers those companies that (or their

predecessors) had little or no production capacities at the dawn of the jet

age. Typically, these companies entered the industry in the 1960s, in

different ways: as spinoffs from research institutes, through diversification

of heavy industry or car manufactures, or were newly established. By catch-

up of latecomers, in a broad understanding we consider their increasing

market share or productivity increase relative to the industry leader.

Our research design can be summarized in Table 1. In brief, we answer the

first research question in Chapter 2 with the help of an empirical study of

the industry's evolution based on of statistics compiled by the author on

production, value added, trade and innovation, from official sources

augmented when necessary in order to obtain comparable time series. Based

on the empirical findings in Chapter 2 and on a review of the literature on

latecomer industrialization, innovation and capability building in Chapter 3,

we answer the two subsequent research questions using qualitative case

studies, structured in conceptual frameworks presented in the respective

chapters. Chapter 4 focuses on the evolution of sectoral innovation systems,

and we conduct a historical-institutional study of country-catch-up using a

framework of innovation system dynamics. Next, Chapter 5 discusses

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industrial leadership change in the regional jet segment in light of windows

of opportunity and preconditions. In this piece of research, all cases of

leadership change are studied in-depth, with a focus on companies as well

as exogenous and endogenous events that may have triggered leadership

change. In order to be comprehensive and objective, we study not only the

companies that became the leaders, but also incumbents and other

challengers. For both Chapters 4 and 5, we rely on data collected from

triangulated sources that include archived company reports, trade journals

and newspapers, secondary studies, as well as official statistics. A

combination of these sources has proved to be very insightful for the

aerospace industry with a highly concentrated company structure, and

where other methods, such as surveys are less effective.

Table 1. A schematic overview of the research design (research

questions and applied methodology)

Research question, in

brief form

Chapter Unit of analysis

(region of focus)

Methodology applied

1. The evolution of the

global aircraft

manufacturing industry and

internationalization

Chapter

2

Country, world

region

(global)

Harmonizing data from

different statistical sources;

comparative analysis of descriptive time-series

statistics

2. Understanding successful and

failed strategies of

catch-up

Chapter 4

Sectoral innovation

systems

(latecomer economies)

Comparative case studies using a framework of

“innovation innovation

system dynamics” (based on neo-

Schumpeterian literature)

3. Industrial

leadership changes in the regional jet

segment

Chapter

5

Companies

(from latecomer and advanced

economies)

Case studies based on the

conceptual framework of windows of opportunities–

strategic response –

preconditions

Finally, the conclusions from the studies at the various levels are brought

together in Chapter 6, which revisits the research questions and summarizes

the results.

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In sum, through this multi-level analysis, this dissertation aims to increase

our understanding of the constant competitive struggle between incumbents

and new entrants, and tries to understand long-term change by disentangling

the various sources of incremental and radical system changes.

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III. Results of the dissertation

We have observed three distinct forms of cycles that affect the growth and

decline of the aircraft manufacturing industry. First, at the level of products,

the fortune of companies at the top of the pyramid depends on the sales

performance of an aircraft or aircraft family. Sales success is not only

necessary to recover the sunk costs in development, machinery, marketing

and support activities, but also to enable companies to make further

investments in new product development. Production curves can be

extended if companies introduce refurbished products and modernize

components and subsystems, such as replacing engines with more efficient

ones. This pattern is applicable to large civil aircraft and regional aircraft

alike, and affects the supply chain.

Second, at the aggregate level of the aircraft industry, we have identified

cycles of expansion and contraction, which are closely correlated with

business cycles in the world economy and affected by global political

events. The oil crises, the increased defense spending during the last decade

of the Cold War, the subsequent Gulf War, the 9/11 shock and the most

recent global financial crisis are a few key events that made their mark on

the evolution of the industry.

Thirdly, between these two levels, we have observed discontinuities in the

evolution of aerospace innovation systems. Institutions in innovation

systems govern learning, technological capability building and new

knowledge production activities. Recurrent events of radical institutional

changes that redesign the system and incremental change as actors gradually

expand their activities within the system framework create a third type of

cycles – albeit cycles that can only be observed indirectly.

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The first research addressed the changes in the international division of

labor in the aircraft industry, and the main patterns of internationalization.

In chapter 2, we have found that the overwhelming majority of commercial

aircraft exports, final products as well as intermediate goods, continues to

originate from North America and Europe. Their combined exports have

more than quadrupled in real terms in the past three decades. The double-

digit annual average growth since 1990 which characterises emerging

producers is to some part due to the very low initial levels, and also to their

gradually increasing production capacity. A more noticeable global trend

has been a gradual redistribution of exports between the US and Europe. At

the same time, it is important to note that in 2012, two emerging exporters

made it to the top 10: Singapore and Brazil, with market shares comparable

to that of Japan, Italy or Spain.

Considering the domestic market as well and focusing on value added, we

find a more significant global redistribution in the mid-ranks of the top 10

aircraft producers. While the dominant producer by far remains the US

(producing more than 2.6 times the amount of the 9 subsequent countries),

China has emerged as the second largest aircraft producer by 2010.

We have also noticed a redistribution of R&D activities. The largest

business R&D spender in the aerospace industry continue to be the

incumbents in the US, Europe and Canada, we have seen the rapid growth

of China (today the 5th largest R&D spender) and the gradual growth of

India and Brazil and Singapore.

We distinguished two waves of internationalization in which the aircraft

industry extended to emerging economies. Although identifying them

requires a certain degree of abstraction and the waves, in a few cases

overlap, there have been notable differences between the two. We have seen

that entry during the second wave of internationalization, occurring in an

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era when companies are increasingly specialized along the supply chain

(most markedly since the 1990s), new entrants face lower capital and

technology barriers than those entering over the 1950s through the 70s, in

an era of vertically integrated companies. Therefore, it is not surprising that

among the many entrants, the success of Embraer was exceptional. Today,

internationalization is fuelled by the pull-force stemming from the shared

strategic interests of governments of emerging economies and of incumbent

firms in the West. The goals of governments of emerging economies for

establishing high-tech, high value added activities and move up along the

value chain –national security interests notwithstanding – meet with the

company interests in cost saving and access to growth markets. Containing

this wave creates a particular challenge for established players in Europe

and North America, which fear the loss of high value added jobs. Yet, the

scale of threat has not yet been justified; consolidation (mergers and

acquisitions), efficiency gains through the use of ICT and reduction in

defense spending appear to have been the major source of aerospace jobs

reduction in the US and Europe, rather than outsourcing to East Asia. The

global aircraft manufacturing industry is still concentrated to North America

and Europe (around almost 88% in terms of value added) and faces and

expanding market – thus, contrary to what hawks say, it is not a zero-sum

game. But comparing the two waves of internationalization, the second one

is expected to have more profound effect then the first. While statistics

show that the fears of North America losing positions may be exaggerated,

European countries face a more direct challenge and need to improve

significantly their competitiveness in aircraft manufacturing, attract R&D

and high value-added jobs, particularly in niche activities. In the end,

innovation systems compete to attract investors, and the number of potential

locations has certainly increased – mostly in East and Southeast Asia,

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Central America, and potentially, Central Eastern Europe. Yet, there are

significant limits to internationalization, as capabilities cannot be

accumulated overnight, which require not only advanced training of highly-

skilled professionals, but also other modes of less formal learning, i.e.

‘learning by doing’. Thus, barriers for latecomer entry remain high, as

aerospace manufacturing remains a technology and capital intensive

industry.

At this point, it may be relevant to discuss the potentials that the second

wave of internationalization brings for companies of Central and Eastern

Europe, or Hungary in particular. The region looks back to a century of

history in the aircraft industry, typically designing and producing for

general aviation; they have experienced challenges of crises and the need

for a system transition after the collapse of the former Eastern Bloc.

Specialization as component suppliers offers opportunities for these

companies with more modest investment capabilities. The question is (and

this warrants further investigation), with what activity can they secure the

best position in the global supply chain – as assemblers of small planes, or

as suppliers of knowledge-intensive subsystems, such as avionics, or

developers and producers of composite materials. These companies may

capitalize from the proximity of related industries, such as automobile,

electronics, precision engineering or chemical sector, and from close ties

with universities and research institutes.

The case studies in the fourth chapter of this dissertation showed that while

every development trajectory was unique and the local context mattered, a

number of general conclusions could be drawn related to latecomer

industrialization. First, that only those emerging economies managed to

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become aircraft exporters where the key elements of a sectoral innovation

system was developed and local research institutes supported the

accumulation, adaptation and development of technological capabilities,

education of experts, and linking up to international knowledge, product and

capital markets. In the years of emergence, governments stepped in to fill

the initial lack in these resources, without blocking the execution of

business decisions with excessive bureaucracy. Typically a strategic public-

private “coalition” supported late industrialization. It is nevertheless

important to note that this implied a sensitive balance, which worked out

successfully for Brazil and Singapore, but not for Argentina and Indonesia,

where the excessive military involvement and lack of oversight over

funding, coupled with insufficient entrepreneurship and competitive

strategy resulted in a lack of growth.

Furthermore, successful catch-up depended on the ability of innovation

system actors to induce a fundamental institutional change in the system

with the aim to adjust to new demand conditions. For instance, in the case

of Brazil, this included the privatisation of the major state-owned enterprise,

the loss of certain local capabilities while joining in global value chain

primarily as system assembler.

The historical studies in the fifth chapter showed that economic crises,

technological innovations available for companies of the sector, and

changes in the regulatory environment have created recurrent windows of

opportunity for latecomer companies to design and implement innovation

strategies which had a fundamental effect on company demography. In the

first instance of industrial leadership change studied, BAe and Fokker, the

two incumbents lost leadership to Bombardier, a Canadian newcomer in

1995. In 2005, Embraer of Brazil overtook Bombardier in terms of number

of regional jets delivered. The analysis of the two cases of leadership

23

change showed that more efficient engines and technological improvements

in subsystems, changing oil prices, business cycles, liberalization of air

transport services, scope clauses and government interventions were the

main sources of technological, demand and regulatory windows. The most

successful challengers were the ones implementing an innovation strategy

and launch a new product family addressing a specific market niche – the

50-seat market in case of Bombardier, and the 100-120-seat market in case

of Embraer. The fate of failed challengers and former leaders points to the

importance of preconditions, that is, technological and financial capabilities

needed for companies to respond to emerging opportunities, as well as the

to importance of the timing of windows of opportunity, speedy strategic

response, a proper evaluation of future demand and sheer luck, as long lead

times and sunk costs entrap incumbents and inadequately responding

companies.

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IV. Summary of conclusions

A main novelty of this dissertation is the way it jointly analyzes the

problems of economic and technological development, competitiveness and

the international redistribution of political power. It proposes a new

conceptual framework to study sectoral catch-up and innovation dynamics.

An important theoretical contribution is the study of Schumpeterian

dynamics from a systemic perspective. Scholars of innovation systems

generally acknowledge that the structure of a system at a certain point in

time reflects the historical evolution of its components (Edquist, 1997;

Malerba, 2002). Yet, how exactly long-term evolution unfolds, what are the

drivers of gradual or radical change have received less attention in the

literature. A key conclusion of the study is that the incremental evolution of

system elements is, from time to time (in the case of the aircraft industry,

this could take decades), punctuated by radical transformation. Such

transformation could be the emergence of new actors (companies, research

institutes), a deep transformation of the channels of interaction between

actors (new way of finance, exchange of knowledge and technologies, etc.),

or a fundamental change in demand conditions. Radical changes are

typically triggered by crises. Yet, systems do not necessarily transform in

the wake of crises, as successful transition requires that active contribution

of key actors (companies, government). It is a real possibility that passive

approach will result in stagnation or a crash course of the industry.

The observation that the competitiveness of high-tech industries is closely

linked to the performance of the sectoral innovation system means a

particular disadvantage for latecomers, where this system needs to emerge.

The strengthening of the system is a precondition for sustained growth of

the sector, but this is the outcome of a long learning process. However,

25

crises discussed above may arrive during this emergence period, and the

aftermath of crises may present conditions very different from according to

which the emerging systems were conceived. Radical changes that are,

according to the terminology of Anderson and Tushman (1986) competence

destroying, can be particularly damaging for latecomers. This highlights the

importance of foresight as well as of the role of chance in successful catch-

up. Although according to the Gerschenkronian argument, latecomers are

better positioned since they need to acquire existing technology, the

conclusions of the fourth chapter show that the length of this learning

process is particularly critical, which is in fact the source of what we see as

net disadvantage.

The firm-level analysis of leadership dynamics highlighted further factors

that drive technological change and the entry and exit of firms in high-tech,

capital-intensive sectors in capitalist economies. The findings on how

various types of windows of opportunity may trigger radical product

innovation and sectoral leadership change points beyond the aircraft

industry and suggest that Schumpeterian “creative destruction” can take a

more limited form and may occur more frequently within the evolution of

an industry. Furthermore, it highlighted the importance to consider, in a

comprehensive way, the co-evolution of technology, economics and

government, and discontinuities in the various domains. “Steady-state”,

simplifying growth models may be useful in predicting the short-term future

of a sector, but for long-term evolution of the system, such co-evolutionary

frameworks seem to be more appropriate.

26

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30

VI. List of relevant publications by the author

Books and book chapters in English:

Vertesy, D. (2015). The Contours of the Global Commercial Aircraft

Manufacturing Industry. In S. Eriksson & H.-J. Steenhuis (Eds.), The

Global Commercial Aviation Industry (pp. 1-32). London: Routledge.

Vertesy, D. (2011). The evolution of the Chinese and Argentine aircraft

manufacturing industries. In M. Santillán, M. H. & Rubiolo (Eds.),

América Latina y el Este Asiático: Perspectivas desde Córdoba.

Córdoba, Argentina: CIECS-CONICET Universidad Nacional de

Córdoba.

Vertesy, D. (2011). Interrupted innovation: Emerging economies in the

structure of the global aerospace industry. Phd Dissertation, Maastricht:

Universiteit Pers Maastricht

Book chapters in Hungarian:

Vértesy Dániel (2008), “Utazás az innovációs rés mélyére”, in: Palánkai et

al (szerk.) Három éve az ötven éves EU-ban, Konferenciakötet,

Budapest: BCE.

Articles in peer-reviewed journals in English:

Vertesy, D. (2013). The lion with wings: Innovation system dynamics in the

aerospace industry of Singapore. International Journal of Technology

and Globalisation, 7(1-2), 118-140. doi: 10.1504/IJTG.2013.052027

Vertesy, D., Annoni, P. & Nardo, M. (2013). University Systems: Beyond

League Tables. Engines of Growth or Ivory Towers? Higher Education

Evaluation and Development, 7(1), 21-43.

doi:10.6197/HEED.2013.0701.02

Re Articles in peer-reviewed journals in Hungarian:

Vértesy, Dániel (2008), “Mi motiválja Közép- és Kelet-Európa vállalatainak

K+F kiadásait?” Társadalom és Gazdaság, 30(1), pp.115-137. DOI:

10.1556/TarsGazd.30.2008.1.7

Vértesy Dániel (2006), “Fejlődő feljesztés? Fejlesztési- és támogatáspolitika

az ENSZ keretében 1945 és 1990 között” Grotius – A Budapesti

Corvinus Egyetem Nemzetközi Tanulmányok Intézetének tudományos

folyóirata.

31

Other journal articles in English:

Vértesy, D. (2011). „Global Insider: The Brazilian Aerospace Industry”

World Politics Review; 10 Jan 2011, p.3.

Muchie, M., Vértesy, D., Baskaran, A., Na-Allah A. A. (2009). Book

Reviews African Journal of Science, Technology, Innovation &

Development, Vol 1, Nr. 2-3, 2009.

Working Papers in English:

Van Roy, V., Vértesy, D. & Vivarelli, M. (2015). Innovation and

Employment in Patenting Firms: Empirical Evidence from Europe,

Institute for the Study of Labor (IZA) Discussion Papers, No 9147.

Vertesy, D. (2014). Successive leadership changes in the regional jet

industry UNU-MERIT Working Paper Series, 2014-046.

Vértesy, D. & Szirmai A. (2010). Interrupted Innovation: Innovation

System Dynamics in Latecomer Aerospace Industries, UNU-MERIT

Working Paper Series, 2010-059;

újra közölve: Globelics Working Paper Nr. 10-02.

Vértesy, D. & Szirmai A. (2010). “Brazilian aerospace manufacturing in

comparative perspective: A Brazil/USA comparison of output and

productivity”, UNU-MERIT Working Paper Series, 2010-032.

Conference Publications in English:

Vértesy, D. (2014). Successive Leadership Changes in the Regional Jet

Industry presentation paper presented at the conference Future

perspectives on innovation and governance in development, Maastricht,

The Netherlands 26-28 Nov 2014

Saltelli A., Saisana M., and Vértesy D., (2013). Advocacy, Analysis and

Quality. The Bermuda triangle of statistics. Presentation at the What way

forward for European and Hungarian Statistics? conference of the

Hungarian Statistical Association, Budapest, 20-21 Nov 2013

Vértesy, D. (2013). Changing leadership in the regional jet industry, Paper

presented at the Conference on Changes in the Industry Leadership and

Catch-up Cycles, Seoul, South Korea 12-13 May 2013.

Vértesy D. (2012). Measuring Innovation, presentation at the 2012 Cyprus

Presidency – JRC Conference Scientific Support to Innovation in the

Services Sector, Nicosia, 13 December 2012.

Vértesy D. (2012). Exploring research performance of countries and

knowledge-led growth, Proceedings of the 10th Globelics 2012

International Conference, 9-11 November 2012, Hangzhou, China

32

Vértesy D., Annoni, P., Nardo, M. (2012). “Regional University Systems:

Engines of Growth or Ivory Towers?” Paper presented at the IREG-6

Conference:The Academic Rankings and Advancement of Higher

Education. Lessons from Asia and Other Regions. Taipei (Taiwan ) 18-

20 Apr 2012.

Vértesy, D. (2011), Charting the Changing Landscape of the Aerospace

Manufacturing Industry, Paper presented at the 9th Globelics

International Conference, Buenos Aires (Argentina) 15-17 Nov 2011

Other peer-reviewed studies in English:

Hardeman S., Van Roy V., Vértesy D. and Saisana M. (2013). An analysis

of national research systems (I) A Composite Indicator for Scientific and

Technological Research Excellence EUR 26093. Luxembourg

(Luxembourg): Publications Office of the European Union; doi:

10.2788/95887

Hardeman S. and Vértesy D. (2013). An analysis of national research

systems (III): towards a composite indicator measuring research

interactions EUR 26405 EN Luxembourg (Luxembourg): Publications

Office of the European Union; doi: 10.2788/50714

Vértesy D. and Van Roy V. (2013). Update on the Composite Indicators of

Structural Change towards a More Knowledge-Intensive Economy EUR

26409 EN Luxembourg (Luxembourg): Publications Office of the

European Union; doi: 10.2788/51665

Vértesy D., Tarantola S. (2012). Composite Indicators of Research

Excellence. EUR 25488 EN. Luxembourg (Luxembourg): Publications

Office of the European Union; 2012. doi: 10.2788/45492

Vértesy D., Albrecht D. & Tarantola S. (2012). Composite Indicators

measuring structural change, to monitor the progress towards a more

knowledge-intensive economy in Europe, Luxembourg: Publications

Office of the European Union; doi:10.2788/20444

Tarantola, S., Vértesy D. & Albrecht D. (2012). Composite Indicators

measuring the progress in the construction and integration of a

European Research Area, Luxembourg: Publications Office of the

European Union; doi: 10.2788/20356